U.S. markets showed continued momentum on Wednesday with the Dow setting fresh record highs after falling shy during Tuesday’s session.
The blue-chips added 0.4% after reaching an intraday peak of 24,941 to remain on track to trip the 25,000 level. The S&P 500 rallied another 0.6% to clear the 2,700 level for the first time ever after reaching an intraday high of 2,714.
The Nasdaq gained 0.8% while setting its second-straight all-time high after testing 7,069 ahead of the closing bell.
Meanwhile, the Russell 2000 showed the most strength after surging 1.1% and kissing 1,555 while missing its lifetime high by less than five points.
Energy and Health Care led sector strength after rising 1.5% and 1% while Technology and Materials advanced 0.8% and 0.7%, respectively. Utilities stayed weak after sinking another 0.8%.
Consumer Staples slipped 0.04% and was the only other sector that closed lower.
Global Economy- European markets rebounded after Germany’s, Europe’s largest economy, unemployment numbers came in better than expectated. France’s CAC 40 and Germany’s DAX 30 rallied 0.8% while the Belgium20 soared 0.7%.
The Stoxx Europe 600 rose 0.5% and UK’s FTSE 100 gained 0.3%
The German December unemployment change fell 29,000, stronger than expectations for a decline of 13,000.
The December unemployment rate was unchanged at 5.5%, as expected and the lowest since 1991.
The UK December Markit/CIPS construction PMI fell 0.9 to 52.2, weaker than expectations for a dip of 0.1 to 53.
ECB Governing Council member Nowotny said the end of the ECB asset-purchase program is was within sight.
Asian markets showed continued strength with New Zealand, Thailand and the Philippines markets setting fresh record highs. China’s Shanghai rose 0.7% and Hong Kong’s Hang Seng advanced another 0.2% to close at continued 10-year highs. South Korea’s Kospi was up 0.4% while Australia’s S&P/ASX 200 climbed 0.2%. Japan’s Nikkei closed for continued holiday celebrations.
MBA Mortgage Applications Composite Index was down 2.8% for the week of December 29th.
Redbook Store Sales were up 5% for the year in the week ending December 29th.
December ISM Manufacturing Index checked in at 59.7 versus forecasts of 58.1.
November Construction Spending was up 0.8%, topping expectations of 0.6% for the month.
Market Sentiment- FOMC Minutes revealed most policymakers supported the gradual rate hike trajectory although there was considerable debate over inflation in the minutes, as expected.
The majority of the Fed members continue to expect the inflation rate to rise to the 2% target, with many seeing cyclical pressures from the tight labor market to push prices higher over the medium term.
The Fed also discussed risks that could lead to a flatter trajectory for the federal funds rate in the medium term, including a failure of actual or expected inflation to move up to their 2% objective.
While the Fed generally sees the risks to the economic outlook as roughly balanced, they agreed that inflation developments should be monitored closely.
A few Fed members indicated that they were not comfortable with the degree of additional policy tightening through the end of 2018 implied by the median projections for the federal funds rate from December.
There were a few Fed members that were concerned by the low inflation expectations, something previous Chair Janet Yellen had mentioned.
Meanwhile, some officials believed inflation expectations had been broadly stable over the year despite the low reading on prices and believed it would support the Fed’s view of a gradual rise.
There was also discussion over the narrowing of the yield curve, with some Fed members expressing concern over a potential inversion. However, the recent spread wasn’t viewed as alarming, but rather still in the range of historical norms.
Many of the Fed heads also expected tax cuts to provide a modest boost to capital spending.
Elsewhere, the Atlanta Fed’s Q4 U.S. GDPNow estimate was boosted to 3.2% in the fourth quarter of 2017, up from 2.8% and the December 22nd update.
The iShares 20+ Year Treasury Bond ETF (TLT) traded higher throughout the session after reaching a peak of $126.20. Prior resistance is at $126.75-$127 held with a close below the latter signaling additional strength.
Support is at $126 with risk to $125.50-$125.25 and the 50-day moving average on a close back below this level.
Market Analysis- The PowerShares QQQ (QQQ) traded to an all-time high of $160.17 intraday to clear the previous peak of $158.77 from mid-December.
Fresh resistance is at $161.50-$162.50 on continued closes above $160. Near-term support is at $158.50-$158 with risk to $156.50-$156 on a close below the latter.
RSI is back in an uptrend with November resistance at 70-75 on continued strength.
The Consumer Staples Select Spiders (XLP) is trying to hold mid-December support at $56.50 with today’s low reaching $56.47. A close below this level would be a bearish development with risk to $56-57.75 on continued weakness.
Resistance is at $56.75-$57 with the December 52-week and all-time high at $57.36.
The 50-day moving average is back in an uptrend after clearing the 200-day moving average to form a golden cross and is typically a bullish signal.
However, RSI remains in a downtrend with November support at 50 in play.
All the best,